The Real World of finance TEAMFLY Team-Fly ® [...]... not even discussed in the classroom Examples of these changing issues include company profitability, audit and control, the external focus of the chief financial officer (CFO), financial responsibilities outside of the finance organization, commercial and investment banker relationships, and the role of the rating agencies This book discusses these challenges in the context of the twenty-first century... technologies 4 THE REAL WORLD OF FINANCE The use of invalid financial concepts is a significant problem in the current environment of evolving business complexity Finance is experiencing rapid change through the development of sophisticated management tools that repackage traditional instruments or risks into their component elements This repackaging allows the transfer or sale of each portion of the risk... reflected in the Enron story Because of the limitations of the book, we are not discussing other considerations: ■ The sad stories and lessons for the twenty thousand jobs and retirement plans put at risk by these actions 11 Introduction ■ ■ The impact on the energy industry (Enron handled onefifth of the energy transactions in the United States.) The company’s dubious place in business history as the largest... Bank of New York some $2 billion 7 Enron invested in numerous global businesses that eventually triggered the use of off-balance sheet partnerships, largely to hide their mediocre performance and avoid damage to the company Among the worst of these investments were Wessex Water (England) and the Dabhol power plant (India) TE AM FL Y 1 Team-Fly® 12 THE REAL WORLD OF FINANCE Lesson Enron Outcome 8 The. .. revenues 10 THE REAL WORLD OF FINANCE THE ENRON DISASTER Probably no situation in recent years illustrates more finance lessons than the Enron Corporation Much of the story remains to be revealed in congressional hearings, court proceedings, and administrative reviews However, we do know that the finance function became a key element in their business strategy, focusing on the trading of energy and... developed their own e-commerce activities to retain loyal customers 8 THE REAL WORLD OF FINANCE A Dot.Com Success There have been a few near successes in terms of control of a specific market, satisfactory service, and customer loyalty, with the most notable being Amazon.com However, even with nearly 20 million customers, the company has yet to make a profit, and it reported a loss of $1.4 billion in the. .. economy from the perspectives of the working CFO rather than the textbook CFO Why the new economy? And what’s wrong with the old economy? The old economy has been driven by industrial production, resulting in systems of manufacturing and mass marketing The CFO’s job in the old economy was relatively simple, because of certain consistencies in the way business has been conducted: ■ A continuation of similar... coincided with the beginning of the dot.com selloff 6 U.S deregulation resulted from the Telecommunications Act of 1996, Public Law 104–104, allowing new market entrants to offer local, long distance, and global telephone service 7 Stephanie N Mehta, “Why Telecom Crashed,” Fortune Magazine, November 27, 2000, pp 125–129, at 127 14 THE REAL WORLD OF FINANCE 8 For one set of predictions on the industry’s... profitable results An early step in our consulting engagements is to ask the Peter Drucker questions: Who is your customer? Why does he or she buy?5 Companies may be able to answer that question in theory, yet our analysis of sales efforts shows wide deviation from stated business objectives The smartest 26 THE REAL WORLD OF FINANCE marketing organizations in the world have developed the data and the. .. Not one of these axioms is true although they all certainly sound logical This book discusses the mythology of each of these financial “truths” and reviews current practices based on consulting experiences with close to 50 percent of the companies in the Fortune 500 WHY GETTING IT RIGHT MATTERS Why does it matter if these financial truths aren’t completely valid? After all, the disciplines of business . discusses these challenges in the context of the twenty-first century “new” economy from the perspectives of the working CFO rather than the textbook CFO. Why the new economy? And what’s wrong with the. and control, the external focus of the chief financial officer (CFO), financial responsibilities outside of the finance organization, commercial and investment banker relationships, and the role of the. 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright